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How Termination Notice, Termination Pay and Severance Pay are Determined in Alberta

How Termination Notice, Termination Pay and Severance Pay are Determined in Alberta


Employees in Alberta who are dismissed without cause or constructively dismissed are entitled by law to a certain amount of notice of termination or pay in lieu of notice. In Alberta, “termination pay” is the statutory minimum required to be paid if the requisite notice of termination under the legislation is not provided.  In addition to termination pay, an employer may also be liable for common law “severance pay”, which is assessed based on a determination of the reasonable notice period and is dependent on the facts of each case.  

The provision of notice of termination of employment or pay in lieu of such notice (or a combination of the two) is mandatory in Alberta upon termination without cause.  There are two general sources for determining notice or pay in lieu of notice: statutory law and the common law.  Additionally, the specific employment contract between the employer and the employee may also include a termination clause which can dictate the length of notice and/or amount of pay that is required.  As such, we always recommend that employers and employees consult with an experienced employment lawyer to discuss a termination of employment and the calculation of notice/pay that is required to ensure compliance with employment law obligations and entitlements. 

Employees who are dismissed for “just cause” are not entitled to notice of termination or pay in lieu of notice.  Termination for cause is most typically alleged in instances of significant employee wrongdoing or misconduct. Employers must be cautious and not allege cause where it is not supported. In instances where cause is alleged but not proven, employers will still have to provide termination pay, and possibly severance pay, to the former employee, and may also face awards of aggravated damages for wrongfully alleging cause. We always recommend that employers consult with an experienced employment lawyer before alleging cause and employees should similarly consult with counsel if they are terminated for cause. 

Statutory termination entitlements 

In Alberta, the Employment Standards Code (the “Code”) sets out the minimum statutory requirements for notice of termination or pay in lieu of notice. Upon the termination of an employee’s employment, the Code requires either: (1) termination notice to the employee; (2) termination pay; or (3) a combination of termination notice and termination pay. 

In certain circumstances, termination notice is not required under the Code, including for example (note that the following is not an exhaustive list): termination of an employee for just cause; termination of an employee who has been employed for 90 days or less; in the case of an employment contract (not to exceed 12 months) where employment is for a specific term or task, and the employment terminates upon completion of the term or task; and seasonal employment. 

Under the Code, an employee is entitled to written termination notice from the employer in the following minimum amounts upon termination of employment:

  • one week, if the employee has been employed by the employer for more than 90 days but less than 2 years;
  • 2 weeks, if the employee has been employed by the employer for 2 years or more but less than 4 years;
  • 4 weeks, if the employee has been employed by the employer for 4 years or more but less than 6 years;
  • 5 weeks, if the employee has been employed by the employer for 6 years or more but less than 8 years;
  • 6 weeks, if the employee has been employed by the employer for 8 years or more but less than 10 years; or
  • 8 weeks, if the employee has been employed by the employer for 10 years or more.

 

As an alternative to providing written termination notice to an employee, an employer may instead pay termination pay, or give a combination of notice and termination pay, in an amount that is at least equal to the amount the employee would have earned if the employee had worked the regular hours of work during the entire termination notice period to which they are entitled under the Code. For example: if an employee is entitled to a minimum notice period of 4 weeks under the Code, then the employer can instead pay that employee 4 weeks’ termination pay, or offer a combination of notice and pay such as 2 weeks’ notice and 2 weeks’ termination pay. 

Although “severance calculators” can be found online, we caution employers and employees from relying on them. Most of these online tools will only provide for the statutory minimums, and calculating termination entitlements can be a much more complex analysis dependant on the terms of the employment contract and/or any applicable common law entitlements.  

Employment contract terms

It is important for employers and employees alike to first review the relevant terms of the employment contract at issue to determine any specific terms relating to termination, notice, termination pay, severance pay, and other obligations and entitlements. The statutory provisions under the Code are only minimum standards, and the employment contract and/or the common law may provide for more notice or severance pay than the minimum notice or termination pay provided for under the Code. Note that employment contracts purporting to provide for less than the statutory minimums under the Code are most likely neither valid nor enforceable. 

Reviewing the employment contract at issue should be a starting point to determine what specific contractual terms the employer and employee agreed to govern the employment relationship. Some employment contracts may include a termination provision which will specify the employee’s entitlement to notice and/or termination pay or severance pay, so as to give direction to the employer and the employee alike on what is required on termination.

Common law termination entitlements

An employee may be entitled to more notice and/or severance pay upon termination than the statutory minimums under the Code.  Under the common law, an employee is entitled to a certain amount of “reasonable notice” of termination, or to pay in lieu of notice. Different factors are considered by a court in determining an employee’s common law entitlement. Some of the factors considered by courts include: 

  • the employee’s salary;
  • the employee’s position/nature of employment;
  • the employee’s length of service for the employer;
  • the employee’s age at termination;
  • the availability of similar employment;
  • the economic/market conditions at the time of termination (note that the COVID-19 pandemic may be a relevant factor);
  • if the employee has a disability or is pregnant;
  • if the employee was recruited for the position away from another job;
  • the manner of termination/conduct of the employer in terminating the employee; and
  • if the employer makes any improper allegations of “just cause” or “for cause” in dismissing the employee.

Although the above list is not exhaustive, it demonstrates the wide range of factors that may be considered when calculating an employee’s common law entitlement to reasonable notice. An experienced employment lawyer is best suited to advise employers and employees on their legal obligations and entitlements based on the unique facts and circumstances of each employment relationship.

Calculation of Pay in Lieu of Notice

In addition to determining any contractual, statutory and/or common law period of notice, the calculation of the components of any “pay in lieu of notice” can be a complicated endeavour.  The components of an employee’s compensation that may be considered in the calculation include the following (this list is not exhaustive): base salary, commissions, bonuses and other incentive payments (such as stock options and other equity based compensation, benefits, and other perquisites of the employment.

CARSCALLEN LLP’S EMPLOYMENT, LABOUR AND HUMAN RIGHTS EXPERTISE

Whether you are an employee or an employer, Carscallen’s experienced team of Employment, Labour and Human Rights lawyers can assist you. Our lawyers specialize in practical, individualized advice to help you understand your rights, duties and responsibilities as an employer or an employee. Our team of lawyers provide tailored, proactive advice to help successfully navigate every stage of the employment relationship. We have the legal expertise to help minimize problems and disputes before they happen, as well as the ability to resolve conflict quickly and constructively when it arises.

If you are an employer or employee and have any questions about the calculation of notice or severance pay upon termination, or any other employment law questions, please contact any member of our Employment, Labour and Human Rights team.

*This update is intended for general information only on the subject matter and is not to be taken as legal advice.

Posted: April 19, 2022
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